Topic 7 - Providers Flashcards
Give examples of providers of financial services?
- banks
- building societies
- credit unions
- post office
- national savings and investments
What is a bank?
A public limited company that sells financial products and services to businesses and individual customers
What is retail banking?
The part of the banking business that deals with individual customers
What does retail banking enable people to do? (5)
- spend -make transactions
- save
- invest
- borrow
- insure - protect themselves
What is a public limited company?
The shares of the company can be bought and sold on the stock exchange
How do public limited companies work -e.g. bank? (6)
-Banks raise capital by selling shares on the stock market
- buyers of the shares are known as shareholders
- shareholders are part owners of the companies
- shareholders of the bank can receive a proportion of the profits in the form of dividends
- banks thus need to satisfy shareholders by providing a dividend which means they must make profit
- shareholders can also gain if the share price increases
- this is more likely if demand for the shares is high which is likely to follow from high profits
How do banks operate?
- The main uK banks are very large organisations that operate in all aspects of financial services globally.
How are banking groups formed?
When financial services providers merge or acquire other providers.
How do banks make money?
- charging fees
- interest rate margin
- difference between interest the banks pay to savers (AER) and the interest they charge to borrowers (APR)
What should be considered when choosing a financial provider?
- How they wish to operate their accounts and communicate with their provider
- visiting a branch, via the internet, by the. phone
- how safe the funds are
- they must be authorised by the prudential regulation authority
What are the PRA and FCA?
Financial conduct authority work together to ensure financial service providers work appropriately
Providers can be checked if they are the regulated by looking at the Financial services register
What are the 5 biggest banks in the uk in terms. Of assets?
- Barclays
- hsbc
- Lloyds banking group
- standered chartered ( uk based but doesnt conduct retail banking in the uk)
- royal bank of Scotland group
What are advantages of banks?
- customers have easy access to a large range of financial products
- banks can invest in new products and services
What are disadvantages of large banks? (2)
- customer service may be less efficient than smaller organisations
- events in other countries can have an impact on UK banks
What were the original function of Building societies?
To provide savings accounts and mortgages
What is a Building Society?
Mutual organisations owned by their customers, called members.
Why are building societies smaller than banks?
- 75% of their assets must be mortgages
- 50% of their total funding must come from members deposits
- restrictions on unsecured loans a building society can make
What are advantages of building societies? (4)
- all customers are members
- they do not have shareholders so don’t need to maximise profits to give shareholders dividends
- All profits made are used to benefit its members
- Customer service tends to score more highly than banks due to mutual status, and because they’re smaller than banks
- tend to only operate within the uk
What does mutual mean in terms of banking?
A bank owned and run for the benefit of the members, a building society.
What is demutualisation?
When a building society becomes a bank.
What are disadvantages of building societies?
- smaller sizes thus less likely to invest in research and development for innovative products or services
- rely on partners to offer a range of services
What happens when demutualisation occurs? (4)
- building societies are free of restrictions
- largest building societies can become banks
- members are typically offered shares
- don’t demutualise know their original form but taken over to be part of larger banking groups
What are credit unions?
Similar to building society in terms of them being a mutual organisation though all members must share a common bond,
What are the common bonds members of a credit union may have? (4)
- live and work in a certain area
- work for a specific employer, co-op, police, Royal Mail
- work in specific industry
- belong to a specific organisation; church or housing association
What do credit unions offer? (5)
- savings and loans mainly
- life insurance
- credit union current account
- credit or debit card
- Pre paid payment card
What are advantages of credit unions?
- lower operating costs than providers, such as banks
-profit used for benefit of the members - provide local community focussed service
-inspire customer loyalty through the common bond
What is the disadvantage of credit unions?
- offer a limited product range, dependent on their size
What does NS&I stand for?
National savings and investments
What products do NS&Is offer?(4)
- cash ISA
- Investment account
- income bonds
- premium bonds
What happens when customers buy NS&I products?
- they are lending money to the government
- all of this money is 100% safe
How do customers purchase NS&I products?
All products must be applied for online, telephone or by post
- not face to face
What is the AER on NS&I products are set to achieve a balance between the interests of who?
Customers, taxpayers, financial services sector
What services do the post office offer? (7)
- savings account
- loans
- Cash ISA
- home and car insurance
- travel insurance
- life cover
- pet insurance
Why are the post office financial services popular?
Very accessible to customers in the UK
What are the 5 ways banks can communicate with customers?
- branches on the high street
- online
- telephone banking
- mobile banking (apps)
- Post
What are the advantages of Bank Branches?
- Face to face communication
- personal customer services
- the branch can advertise all of its products
What are the disadvantages of bank branches?
-cost of running the branch to the provider
- may be inconvenient for customers to have to go into a store
What’s the advantages of online banking?(4)
- websites are open 24/7 thus convenient
- banking transactions can be carried immediately - fast
- research online to apply for products online
- Low cost to provider compared to branches
What are the disadvantages of online banking?(2)
- security issues
- lack of personal interaction, perhaps leading to inferior customer service
What are the advantages of telephone banking advantages? (3)
- long opening hours so more convenient
- cheaper to run than a branch
- customers can speak to staff directly with knowledge of their enquiry
What is the main advantage of postal banking communication?
Delivers a physical message that customers can spend time reviewing or documenting messages.
Convenient for signatures
What must a customer consider when choosing a provider? (3)
- identifying the product they need
- research the best rates
- consider how safe the product is
-how they want to communicate with the provider
-check the financial services register to see if it’s regulated
